Jack Heidel's blog on fiscal responsibility

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The Dangers of Complacency

My last post, “What Ails America? I. Complacency,” lays out the thesis of the economist Tyler Cowen that American society has become much too complacent, i.e. self-satisfied, in recent years. In particular:

Fewer Americans are moving.

Segregation (by income, education, social class and race) is increasing.

Americans have stopped creating. New business creation is down and monopolies are getting stronger.

Matching (i.e. assortative mating) is on the upswing.

Calm and safety above all is the predominant attitude.

These societal trends are normal and even desirable in many respects. But they can lead to stagnation. Eventually needed social change will boil over in uncontrollable ways and America will undergo a “Great Reset.”

This will likely involve major events such as:

A major fiscal and budgetary crisis. Currently our public debt (on which we pay interest) is 77% of GDP, the highest since just after WWII. It will keep rising steadily without a major change in public policy. When interest rates return to more normal higher levels, interest payments on our debt will be a huge drain, without letup, on our tax revenue.

The inability of government to adjust to the next global emergency which comes along. When the financial crisis came along in 2008, debt was at the much smaller level of 38% of GDP. This allowed for temporary fiscal stimulus and larger deficits to ride out the resulting recession. With our currently high debt level, we’ll have far less flexibility when the next recession comes along.

A rebellion of many less-skilled men. The median male wage (adjusted for inflation) was higher in 1969 than it is today. In fact, the take-home pay for typical American workers has been falling since the end of the Great Recession in June 2009. To a large extent this explains the rise of Donald Trump.

A resurgence of crime. A new crime wave will probably be internet related. There are now tens of millions of identity thefts, phishing attacks and successful but fraudulent pleas for cash every year. Internet crime is calmer than traditional crime and less visible. But the next crime wave could badly damage internet commerce.

Conclusion. Mr. Cowen paints a depressing picture for the future of American society. Of course, it is possible to turn some or all of these negative developments around. But will a complacent American populace have the political will to do it?